By Matt Burns for Business First of Columbus
Fifth Third Bancorp Chairman William Isaac sees some welcome news in the wake of the financial panic that saw venerable Wall Street titans collapse and credit freeze: It’s not as bad as the 1980s crisis he witnessed while chairman of the Federal Deposit Insurance Corp.
Not that everything is sanguine these days, he said in a speech on Ohio State University’s campus Wednesday. The nation’s political leadership hasn’t learned the right lessons from the latest crisis, he said, and it hasn’t adequately shielded the nation from another meltdown.
“We spent all this time on reforming the financial system and we didn’t reform anything that needed to be fixed,” Isaac said in his address at the Moritz College of Law.
Isaac visited Columbus while in the state for a board meeting at Cincinnati-based Fifth Third (NASDAQ:FITB). Chairman of the consulting firm LECG Global Financial Services and a television and print commentator, he also authored a new book, Senseless Panic: How Washington Failed America. In the book, Isaac makes the case that shoddy crisis management on Capitol Hill was behind the devastation of the financial markets in late 2008.
But the most recent crisis, he said, paled in comparison to conditions he faced when serving as the Republican appointed to head the FDIC after Ronald Reagan defeated Democrat President Jimmy Carter in 1980. About 3,000 banks and thrifts disappeared in that decade, roughly 10 times the number that has gone under in the last few years.
Emerging from the savings-and-loan scandal and crisis of the ’80s, Isaac said policy relied on markets instead of regulations over the following two decades. That shift led to what Isaac dubbed “deplorable” and “schizophrenic” crisis management in 2008 as U.S. Treasury officials billed the $700 billion government bailout program as a last-ditch effort to save an economy on the verge of collapse.
“You can’t yell ‘fire’ in a crowded room and not expect what we got,” he said.
Isaac also pointed a finger at the Obama administration’s financial reform package, which failed to take a step he considers essential to financial stability: Consolidating and strengthening regulatory agencies often at odds with each other.
“You have to begin (a recovery) with a strong banking system,” he said. “We need to stop beating up on banks and regulating them properly.”
Isaac’s forecast largely dismisses the worst-case scenario of a double-dip recession, but said it is slow growth at best for now as financial industry and public confidence remains in the doldrums.
“Until we resolve this (regulatory and consumer) uncertainty, we’re not going to fix those problems,” he said.
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